Constructing the Eurasian Economic Union

The presidents of Russia, Kazakhstan and Belarus formally signed an agreement on Thursday to create a limited economic union — an alliance hobbled by the absence of Ukraine but one long pursued by President Vladimir V. Putin of Russia to confirm his country as a global economic force.

“Today we are creating a powerful, attractive center of economic development, a big regional market that unites more than 170 million people,” Mr. Putin said during the ceremonies. He underscored the significant energy resources, work force and cultural heritage of the combined nations.

This treaty, which was signed this past week but is not expected to come into force until January 2015, marks the next step in transforming the still-nascent Eurasian Customs Union (ECU) into the Eurasian Union (EEU). Russian pressure for Ukraine to turn away from association with the European Union and towards Moscow-led Eurasian integration was one of the roots of the current crisis.

As the Shanghai Cooperation Organization (SCO) with China and the Central Asian states is Russia’s answer to U.S. military alliances, Eurasian economic integration is meant to be Russia’s response to EU and U.S. economic power. According to a chronology in a report by the Centre for European Policy Studies, the creation of the EEU was first suggested by the President of Kazakhstan, Nursultan Nazarbayev, in 1994. There was not much movement until the negotiation and signing of a customs union treaty among Russia, Belarus, and Kazakhstan in 2007. The basic requirements of the Eurasian Customs Union came into force in 2010, which were essentially trade policy coordination measures establishing a common external tariff among its members. However, the deepening Eurasian economic integration was given a boost by an op-ed by Russian President Vladimir Putin in October 2011.

In early 2012, the member states deepened ECU’s institutions by starting the operations of the Eurasian Economic Commission, a supranational entity that was contemplated in the 2007 treaty, to manage the external trade regulations of the member states, including relations with the WTO. That also marked the establishment of the “single economic space” (SES) among the member countries which, in the words of the Centre for European Policy Studies paper, “envision[ed] further regulatory convergence and harmonisation of national laws” in particular economic sectors.

The treaty that was signed on May 29th is ostensibly to move from customs union towards a full economic union, with free movement of goods, capital, and people among the member states, but reality has so far proven to be less sweeping and heroic than the rhetoric that marked the occasion. The most obvious issue is that the EEU was originally envisioned to include not only Russia, Belarus, and Kazakhstan, but also Kyrgyzstan, Armenia, and especially Ukraine. Ukraine would have added a populous country with economic potential and an an economy that (unlike Russia and Kazakhstan) was not based on natural resource exploitation. But Russia’s intervention in Ukraine backfired: not only did it fail to bring Ukraine into the EEU fold but, according to a Radio Free Europe report, it has weakened the EEU by having:

… shaken the tripartite bloc and made both Belarus and Kazakhstan wary of deeper integration with Russia, Chausov says. The three leaders had a fairly rocky summit in Minsk in April at which both Belarusian President Alyaksandr Lukashenka and Kazakh President Nursultan Nazarbaev hinted that the bloc was moving too quickly.

As a result, the treaty to be signed in Astana [was] full of gaps at key places.

“What is interesting is that they have left a lot of stuff to be determined in annexes,” says Rilka Dragneva-Lewers, a professor at the University of Birmingham Law School who studies Eurasian integration. “Also what is very interesting is that over the course of the negotiations any mention of supranational elements like the Eurasian Parliament were removed, which was clearly under Nazarbaev’s and Kazakhstan’s insistence.”

Neither Kyrgyzstan nor Armenia has formally joined the EEU at this juncture, although the official line is that each will do so. However, it may be that Russia’s intervention in Ukraine and its bullying tactics across the board is making other countries concerned about Russian domination. Setting aside military intervention, the supposedly supranational Eurasian Economic Commission is essentially Russian-led. Of the votes on the Commission, Belarus and Kazakhstan each have 21.5% and Russia 57%. (According to a recent paper by Iana Dreyer and Nicu Popescu published by the European Union Institute for Security Studies, Russia provides 86% of the EEU’s GDP, so the political power disparity tracks economic disparity in the EEU.) I have not seen how many measures (if any) would require a super-majority, but, regardless, this puts Russia in a very strong relative position, at the very least able to block any measure.

Perhaps this concern about giving an interventionist Russia too much power was what motivated the gutting of other supranational institutions in the EEU Treaty. The New York Times article further describes Kazakhstan’s perspective:

“We are not creating a political organization; we are forming a purely economic union,” Bakytzhan Sagintayev, the first deputy prime minister of Kazakhstan and lead negotiator, said in an interview. “It is a pragmatic means to get benefits. We don’t meddle into what Russia is doing politically, and they cannot tell us what foreign policy to pursue.”

But, for its part, Russian leadership has stated that while the EEU is about economics, it is also about norms. From the Radio Free Europe report:

Aleksandr Lukin, deputy director of the Russian Foreign Ministry’s Diplomatic Academy, wrote recently that the [Eurasian Economic Space] is “an independent power center in Eurasia” and that “although economic considerations are important, they are also secondary to a set of values differing from those preached by the West.”

While Russian rhetoric wants to emphasize Eurasian integration as a broad normative project, counterbalancing the values of the EU, the current structure of the Eurasian Economic Union may not support such claims. According to Dragneva-Lewers in the Radio Free Europe article, the EEU:

does not “purport to change the nature of domestic institutions in the manner that the EU does.” Joining a union of three post-Soviet authoritarian regimes has appeal for certain post-Soviet countries, while countries such as Moldova, Ukraine, and Georgia with more open political systems have been the most skeptical.

Moreover, the economic logic of the EEU is weak. Radio Free Europe notes that both Belarus and Kazakhstan have declining trade relations with Russia and increasing trade with the EU. Moreover, according to the Moscow Times, the free market that is being built among the EEU member states will not include energy, meaning, for example, that Belarus

will have to continue paying duties to Moscow on its exports of oil products based on oil imported from Russia, said Julian Cooper, professor of the Centre for Russian and East European Studies at University of Birmingham…

<snip>

[Belarus’ President] Lukashenko also was promised that export duties will be eliminated when a single market for energy is created, something not planned until 2025.

Rather than careful economic policy-making, signing this treaty at this time seems to be about making a political statement. The New York Times article states:

“It is meant to signal that these Western programs and opprobrium are not having an effect on the economy and that Russia is developing into a distinct pole in the multipolar system,” said Alexander Cooley, a professor of political science at Barnard College.

As a matter of substantive law, such hasty treaty drafting may result in bad policy. From the Moscow Times:

“Problems arise because the countries within the union have different technical and sanitation standards for imported products,” said Alexander Knobel, the head of international trade laboratory at the Gaidar Institute.

This, he said, should had been solved within the Customs Union, prior to signing any other agreements…

The logical progression of economic integration should have first established the free movement of products within the Customs Union, then go on to the Single Economic Space to ensure an unrestricted provision of services, and only then switched to an economic union where goods and services, finance and labor circulate without restrictions, Knobel said.

Instead, the union is hastily leapfrogging to economic integration while leaving trade issues unsolved, he said.

The ongoing construction of the Eurasian Economic Union has many hurdles before it: what to do without Ukraine, the tension caused by differing goals of the member states (is the EEU about counter-balancing western values or not?), how much power will Russia have vis-a-vis the other member states, filling all the substantive gaps that were papered over in order to announce the signing of the treaty, and the future of energy trade within the EEU, to name a few.

Remember the CIS? Regional organization in the former Soviet Union is no easy task. President Putin has his work cut out for him.

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